I young now entering the world of work will retire only at 71 years old, on average 9 years later than those who retire today thanks to the various options available which allow early retirement around the age of 62. It is one of the highest ages of all OECD countries, tied with Estonia e Netherlands, but behind the Denmark (74 years) and against an OECD average of 66 years. Provision of benefits to relatively young retirees contributes the second highest public pension expenditure among OECD countries, equal to 15,4% of GDP in 2019, behind only Greece, and an equally heavy burden in terms of social security contributions. To photograph the worrying scenario the report "Pensions at a Glance” of the OECD which reviews pension systems in euro area countries between September 2019 and September 2021. Unlike previous editions, this one provides an in-depth analysis of automatic adjustment mechanisms in pension systems.
One of the problems of our country is the rapid aging of the population which will lead to “74 people aged 65 and over for every 100 people in 2050”, which is one of the highest ratios in the OECD. By retiring earlier, at age 68, the future net replacement rate drops substantially to 72%, which remains high by international comparison. Many options for retiring below the statutory retirement age result in a low average exit age from the labor market, on average 61,8 years compared with the OECD average of 63,1 years.
However, not all workers can expect such high replacement rates. For example, an Italian female worker who starts her career at 27 and has a 10-year unemployment break during her working life will receive a 27% lower pension than a full-time female worker, versus the average of 22% in the OECD area. Furthermore, as the self-employed's contribution rates are one-third lower than those of employees, the self-employed can expect pensions around 30% lower than those of employees with the same taxable income throughout their career, against 25% of the OECD average.
THE INCOME OF THE ELDERLY IN ITALY
The relative income of the elderly is currently high in Italy. As regards the average income of people over 65, it is similar to that of the total population, but lower on average by 12% in the OECD and by 15% compared to Italy two decades ago. However, the income inequality and poverty rate relative among the elderly are in line with the median value of the OECD countries, following a substantial drop in the poverty rate of the Italian elderly in recent decades. During the pandemic crisis, pensions did not decrease and pension rights continued to fully accrue even for workers on layoffs, as in most other countries in the area.
THE PENSION SYSTEM IN ITALY AND THE LINK WITH LIFE EXPECTANCY
With the introduction of a notional defined contribution pension scheme (NDC – Notional Defined Contribution) In 1995 (Dini reform), Italy took a decisive step to face the challenges posed by the rapid aging of the population. The Italian NDC system links the statutory retirement age to life expectancy.
This link - explains the OECD - is not necessary to improve pension finances, but aims to prevent people from retiring too early with pensions that are too low, as well as promoting employment in older age. Italy has one of the highest future retirement ages (71), compared with an OECD average of 66 for the generation now entering the labor market. In Italy, as in Denmark and Estonia, all improvements in life expectancy are automatically carried over to the retirement age. Of the six OCS countries with NDC schemes, only Sweden has an automatic mechanism at the top that ensures a balanced pension budget over time.
EARLY RETIREMENT OPTIONS
Over the past two years, early retirement options have been extended in Italy, providing a "loophole" to the link between retirement age and life expectancy. Between 2019 and 2021, 100 quota made it possible to retire at the age of 62 with 38 years of contributions, a good 5 years ahead of the statutory retirement age. In the draft budget law for 2022, this early retirement option was extended for 2022, while tightening the age condition to 64 (102 quota).
According to the organization, Quota 100 has made it easier to access pensions as previously it was possible to retire earlier than expected only with a seniority of contributions of 42,8 years for men and 41,8 years for women women. Apart from Italy, only Spain allows obtaining a full pension before the statutory retirement age with less than 40 years of contributions, guaranteeing a pension treatment lasting on average 22 years for men and 26 years for women, while Belgium requires 42 years, France 41,5 years and Germany 45 years.
All of this has a major impact on the public finances. In fact, according to the report, spending on pensions in Italy is among the highest. But it must be said that the numbers include both welfare and social security treatments, also influencing future estimates, which see the cost of pensions in Italy reaching 17,9% of GDP in 2035 against an OECD average of 10%.
Italy has also extended other temporary early retirement options that were due to expire in 2020. This includes theSocial bee, the option to retire at 63 with 30 years of contributions for people who are unemployed, disabled or carers, or after 36 years for people in demanding occupations. A similar extension to retire up to seven years before the statutory retirement age has been granted to workers in restructuring companies. Then there is theWoman option, initially introduced for one year in 2017, was extended until the end of 2021, and based on the draft budget law for 2022 it was extended for 2022. This option allows women to retire at age 58 ( or 59 if self-employed) after a 35-year career, but pensions are then calculated entirely on the basis of NDC rules.
According to the report, without these "loopholes" the Italian pension system would benefit from "improved transparency in the calculation of contribution-based benefits" and "greater monitoring and management of long-term solvency".
